(Bloomberg) President-elect Donald Trump’s threat of retribution against companies that move jobs out of the U.S. is already having the effect he probably intended: some business leaders are pausing plans to seek foreign addresses.
Ross Baldwin, whose San Diego-based firm Tacna helps U.S. companies set up manufacturing operations in Mexico, said three new clients put their plans on hold until they see what Trump does as president.
At the McAllen Economic Development Corp., which assists companies seeking to expand across the Mexican border from the Texas city, two of five companies currently considering a move have put the brakes on their plans because of Trump, said Keith Partridge, the development corporation’s chief executive officer.
Trump’s Twitter vow that companies shifting jobs out of the U.S. will face “consequences” under his administration introduced new and difficult-to-gauge political risk for businesses considering offshoring to lower costs. The incoming president’s passion for the cause was underscored at his Dec. 1 rally to celebrate an agreement he reached with United Technologies Corp.’s Carrier unit to keep about 800 factory jobs in Indianapolis instead of moving them to Mexico.
“What they did in Indiana has made it clear to every board member in America that there is a clear and present danger in outsourcing” said Jim Courtovich, managing partner of the Washington public affairs firm Sphere Consulting, who said he has already heard from worried business executives.
GN Store Nord A/S looked into moving some hearing-aid production work from Minnesota to Mexico earlier this year but put the plan on hold because of U.S. campaign rhetoric, a person familiar with the matter said. GN wants to explore incentives to keep production in Minnesota and whether there would be penalties for relocating jobs to other countries, said another person. Both people asked not to be named because the discussions are private.
GN doesn’t comment on internal deliberations and has “no plans whatsoever” to move its Minnesota production, Anders Hedegaard, CEO of GN Hearing, said in an e-mailed statement. “We have recently consolidated our U.S. production in Minneapolis, where we have invested heavily and increased staff. We are very pleased with the location.”
Trump’s Leverage
Key congressional Republicans have indicated they’ll balk at a 35 percent tariff Trump has proposed for companies that move jobs outside the U.S. and then export products back to the country. But as president, he’ll have plenty of other levers of power—chiefly, the bully pulpit.
Some companies are still moving ahead in shifting jobs. Rexnord Corp. is planning to move some 300 manufacturing positions to Mexico from a ball bearings plant just a mile away from the Carrier plant Trump visited. He attacked Rexnord on Twitter for “rather viciously firing” the U.S. workers. Rexnord didn’t respond to requests for comment about the tweet and its plans for the Indiana plant.
Baxter International Inc., a maker of health-care products, is moving some production from an Englewood, Colorado, plant to Tijuana, Mexico, according to a certified trade adjustment assistance petition filed by the state government. Some of the work is being done remotely by employees who have remained and “much of the work is being transitioned to third-party business partners in the U.S.,” Baxter said in an e-mailed statement.
Cardone Industries, a closely held auto-parts maker based in Philadelphia, is moving work to Mexico, affecting 1,300 jobs, according to a trade adjustment assistance petition filed by the company. Cardone’s human resources director didn’t respond to requests for comment.
Baldwin said his clients will watch how Trump responds in such instances. Companies that have cold feet from Trump’s rhetoric have merely put their plans on “a pause,” he said, “until we sort out what’s happening.”
Poll Data
Trump has the public on his side. Seventy-four percent of registered voters support a tax hike on U.S. companies that move jobs overseas and 73 percent say they would have a less favorable view of a company that moves work abroad, according to a Politico/Morning Consult poll taken Dec. 1-2.
Trump has already mastered the use of invective and Twitter to punish people and institutions that antagonize him. The prospect of a public shaming is particularly unsettling for corporate insiders used to operating beneath the radar, Courtovich said.
“Board members don’t like being put under a microscope and what Trump is basically saying is they’re going to have the Hubble Telescope on them,” Courtovich said. “The public relations play on this is far more dangerous.”
Crony Capitalism
Trump’s Carrier deal has been labeled an example of “crony capitalism” by a handful of both Democrats and Republicans, including former Republican vice presidential nominee Sarah Palin and Larry Summers, a former top economic adviser to President Barack Obama. But past presidents have at times intervened in the economy in similar ways, even if recent presidents have mostly avoided openly manipulating companies.
President John Kennedy in 1962 publicly criticized steel executives for a 3.5 percent price increase. The steel companies backed down after the IRS began auditing executives’ expense accounts and the Justice Department opened an antitrust investigation. Lyndon Johnson, also sensitive to inflation, ordered his surgeon general to highlight the health dangers of cholesterol when egg producers raised prices in 1966.
The difficulty in predicting how an irate Trump might respond is especially unnerving to today’s corporate executives, said William Reinsch, a fellow at the Stimson Center and former president of the National Foreign Trade Council, a business association.
“Until the policy clarifies and they have a better sense of how Trump will behave, I think they’ll wait,” Reinsch said.
Temporary Delay
The delays may only last about six to nine months, said Gary Swedback, president of Mexico operations at commercial real estate broker NAI Global.
Of companies poised to make their first move into Mexico, about a third has postponed deals to gain better insight into Trump’s plans, he said. A Chicago-based developer working with Swedback was ready to purchase three sites in Mexico to build industrial parks. Now, it wants more clarity on how Trump will treat Mexico.
Swedback is optimistic the current slowdown will prove temporary. It would take an all-out trade war with Mexico, not just selective tariffs, to cause companies to end up canceling plans, he said.
“They are telling us very specifically, ‘We are only postponing or delaying until we get a better idea of what to expect,”’ he said. “This time next year, all these investments will be moving forward and the companies will remark that it was too bad they had to delay six to nine months.”
- Mike Dorning, Thomas Black and Nacha Cattan, Bloomberg News
